Approves cross-disciplinary research and leadership grants

Plain-English summary

A private foundation proposed grants for recent PhD recipients in science, technology, engineering, and mathematics. Recipients would conduct postdoctoral research outside their planned field and complete leadership training, with selection based on research achievement, leadership potential, creativity, and broader impact. The program included written grant agreements, annual and final reports, monitoring, recovery of misused funds, conflict safeguards, recordkeeping, and checks for compliance with federal economic sanctions. The IRS approved the procedures under section 4945(g)(3). As a result, grants made under the approved procedures would not be taxable expenditures.

Ruling snapshot

• Question: Did the foundation's procedures for cross-disciplinary postdoctoral research and leadership grants qualify for advance approval under section 4945(g)(3)?
• Outcome: Approved.
• Key authorities: IRC §§ 74(b), 117(a), 170(b)(1)(A)(ii), 170(c)(2)(B), and 4945(g); Treas. Reg. § 53.4945-4(c)(1).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Employer Identification Number: [redacted]
Number: 201813019
Release Date: 3/30/2018
Contact person - ID number: [redacted]

Contact telephone number: [redacted]

Date: January 5, 2018

LEGEND

B = Name
C = Name
D = Name
E = Name

t = Duration
v = Duration
w = Quantity
x = Quantity
y = Quantity
z = Duration

UIL: 4945.04-04

Dear [redacted]:

You asked for advance approval of your educational grant procedures under Internal
Revenue Code Section 4945(g)(3). This approval is required because you are a private
foundation that is exempt from federal income tax.

Our determination

We approved your procedures for awarding educational grants. Based on the information
you submitted, and assuming you will conduct your program as proposed, we determined
that your procedures for awarding educational grants meet the requirements of Code
Section 4945(g)(3). As a result, expenditures you make under these procedures won't be
taxable.

Description of your request

Your letter indicates that you will operate an educational grant program called B.
The purpose of B is to support the next generation of leaders and innovators in the fields
of science, technology, engineering, and math. To support that goal, recipients will
receive grants to allow them to conduct research in a field that is outside their planned
field. By gaining experience in another research field, the recipients will be exposed to
research methods, attitudes, and even a culture, that may be different from their previous
experiences. This exposure will enable the recipients to learn more about themselves
and about others, which improves their opportunities to develop important skills to serve
as future leaders, both in science and in society.

You expect to collaborate with a partner organization in conducting B currently identified
as C which is a public charity. In the future, this may change but any partner organization
will be a domestic public charity or its foreign equivalent. Both you and your partner will
distribute application forms and informational packets. Furthermore, you will provide
information and other notifications to the best science and engineering universities so
they may nominate highly-qualified candidates who are expected to receive an
appropriate PhD before the start of that year’s program.

B will consist of D and E. D will last t and require the recipients to serve in a research
position in the post-doctoral stage of their training at a university, educational institution,
or research institution described in the Code in a different research field from their
planned field of research. E will last about v and be comprised of lectures, classes, and
group learning in leadership training. You and at least one domestic or foreign
organization will jointly conduct this portion.

Although the final number of grants and the total dollar amount of each grant will depend
on the quantity and quality of the applications you receive and your available funding, you
anticipate awarding about w grants in the first year, about x in the second year, and in the
range of y in succeeding years in a sufficient amount to permit the recipients to focus on
research and leadership skills. The amount of each grant may also depend on the cost of
living and other reasonable and necessary expenses in the region where the research is
being conducted and where the second part of the training is taking place. Furthermore
as part of the grant proceeds, you will provide stipends during both parts of B as well as
cover all direct costs during the second part of B.

To be eligible, individuals must:

a. Be post-doctoral researchers and have received a recent PhD in mathematical,
computing, or natural sciences, or in an engineering field;

b. Demonstrate scholastic ability;

c. Plan to pursue a research career; and,

d. Agree to undertake z in training before starting their next post-doctoral and faculty
position sequence.

Eligible individuals are required to complete a short application form and a research plan;
in addition, applicants must provide other documents such as resumes, copies of
publications and research papers, letters of recommendation from faculty researchers in
their field and other relevant information.

Letter 4779 (10-2012)
Catalog Number 58222Y

Applicants meeting the eligibility criteria will be evaluated based on the quality of
completed research, their demonstrated research achievement and leadership potential,
their creativity, and their interest in having an impact on the world outside the constraints
of their research. All applications will be assessed by selection committees that you and
your partner have equally established. There will be two selection committees which you
and your partner have established. Selection committee members will be distinguished
researchers in the mathematical, computing, and natural sciences and engineering fields
and who are in some ways leaders in their fields or communities. The selection
committee members may also serve a term of multiple years to ensure continuity.

The first selection committee will rate the applications based on applicants’ research
accomplishments and potential. The second committee will then evaluate the best
candidates from the first group and choose a specific number who best meet the
selection criteria. The second selection committee will then interview the group of best
candidates to determine a set of finalists. The recipients will then be decided under your
supervision and that of the governing body of your partner.

There will be no limitations or restrictions in the selection procedures based upon race,
religion, national or ethnic origin, or other illegally discriminatory criteria. No person on
the selection committees will be able to derive a private benefit, directly or indirectly, if
certain potential grantees are selected over others. Individuals who are your employees,
employees of organizations controlled by one of your directors, members of your board,
or related by blood or marriage to your employees or directors or organizations controlled
by one of your directors, will not be eligible for your grants.

You will require each recipient to sign a grant agreement before any funds are disbursed.
Concerning payment, you may either make the grants directly to the recipients or, if there
is a partner, you may make grants to the partner who would then make grants to the
recipients.

You will also require reports on the use of the funds and the progress made by the
grantees toward achieving the purposes for which the grant was made. Such reports
must be made at least once a year. If the grant term is longer than one year, upon
completion of the undertaking for which the grant was made, you will require a final report
describing the grantee’s accomplishments with respect to the grant and accounting for
the funds received under such grant.

Using the reports required by the grant agreement, you will monitor and evaluate the
expenditure of funds and the progress made by each recipient.

Any apparent misuse of grant funds will be promptly investigated. If you discover that
funds have, in fact, been misused, you will require the recipient to return the funds
immediately, and you will make no further distributions to that recipient.

You will maintain case histories showing recipients of your educational grants, including
names, addresses, purposes of awards, amount of each grant, manner of selection, and
relationship (if any) to officers, trustees, or donors of funds to you.

Letter 4779 (10-2012)
Catalog Number 58222Y

Grants may also be renewable. For example, you expect that some recipients may
demonstrate passion and appropriate interest in their new post-doctoral research that
they may consider shifting their long-term goals. In such cases, they may apply for a one-
year extension to increase their credentials in a new field.

Finally, in determining an individual's eligibility to receive a grant, you will ensure
compliance with rules issued by the United States Department of the Treasury's Office of
Foreign Assets Control (OFAC), which currently include the following:

a. Check the OFAC List of Specially Designated Nationals and Blocked Persons
before dealing with persons including individuals, organizations and entities and
specifically avoid dealing with any persons on the list.

b. Make grants pursuant to a written grant agreement expressly prohibiting diversion
of charitable assets to support terrorism or other non-charitable activities.

c. Not make grants to individuals if doubts exist that the grantee will use the funds for
the stated charitable purpose.

d. Comply with United States statutes, executive orders, and regulations that restrict
or prohibit U.S. persons from engaging in transactions and dealings with
designated countries, entities, or individuals, or otherwise engaging in activities in
violation of economic sanctions administered by OFAC.

e. Acquire from OFAC the appropriate license and registration where necessary.

Basis for our determination

The law imposes certain excise taxes on the taxable expenditures of private foundations
(Code Section 4945). A taxable expenditure is any amount a private foundation pays as a
grant to an individual for travel, study, or other similar purposes. However, a grant that
meets all of the following requirements of Code Section 4945(g) is not a taxable
expenditure.

• The foundation awards the grant on an objective and nondiscriminatory basis.

• The IRS approves in advance the procedure for awarding the grant.

• The grant is:

• A scholarship or fellowship subject to Section 117(a) and is to be used for
  study at an educational organization described in Section 170(b)(1)(A)(ii); or

• A prize or award subject to the provisions of Section 74(b), if the recipient of
  the prize or award is selected from the general public; or

• To achieve a specific objective; produce a report or similar product; or
  improve or enhance a literary, artistic, musical, scientific, teaching, or other
  similar skill or talent of the recipient.

To receive approval of its educational grant procedures, Treasury Regulations Section
53.4945-4(c)(1) requires that a private foundation show:

Letter 4779 (10-2012)
Catalog Number 58222Y

• The grant procedure includes an objective and nondiscriminatory selection
process.

• The grant procedure results in the recipients performing the activities the grants
were intended to finance.

• The foundation plans to obtain reports to determine whether the recipients have
performed the activities that the grants were intended to finance.

Other conditions that apply to this determination

• This determination covers only the grant program described above. This approval
will apply to succeeding grant programs only if their standards and procedures
don’t differ significantly from those described in your original request.

• This determination applies only to you. It may not be cited as precedent.

• You cannot rely on the conclusions in this letter if the facts you provided have
changed substantially. You must report any significant changes in your program to
the Cincinnati Office of Exempt Organizations at:

Internal Revenue Service
Exempt Organizations Determinations
P.O. Box 2508
Cincinnati, OH 45201

• You cannot make grants to your creators, officers, directors, trustees, foundation
managers, or members of selection committees or their relatives.

• All funds distributed to individuals must be made on a charitable basis and must
further the purposes of your organization. You cannot award grants for a purpose
that is inconsistent with Code Section 170(c)(2)(B).

• You should keep adequate records and case histories so that you can substantiate
your grant distributions with the IRS if necessary.

We've sent a copy of this letter to your representative as indicated in your power of
attorney.

Please keep a copy of this letter in your records.

Letter 4779 (10-2012)
Catalog Number 58222Y

If you have any questions, please contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4779 (10-2012)
Catalog Number 58222Y